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This is a scary Tesla chart: Bollinger

Lawrence Lewitinn

Talking Numbers•October 29, 2013

This is a scary Tesla chart: Bollinger

John Bollinger, father of Bollinger Bands, on why this Tesla chart is terrifying.

It's one thing to dress up as a ghoul for Halloween but when it comes to investments, one should try to avoid terrifying stocks. According to one of the greatest technical analysts of all time, there's one stock chart that's particularly bloodcurdling: Tesla.

John Bollinger is the developer of Bollinger Bands, one of the most important indicators in charting a stock. Since their invention three decades ago, Bollinger Bands have become an integral tool for practitioners of technical analysis.

"The Bands are actually quite simple. There are three lines: the middle band defines the trend, whether stocks (or futures or forex or whatever) are rising or falling. And the upper band and lower band define whether prices are relatively high or relatively low. So, by definition, prices are relatively high on the upper band and they’re relatively low at the lower band. You can use that information in pattern recognition or to compare price action to indicators and to arrive at rigorous investment decisions."

Bollinger has applied his invention to Tesla, one of the hottest stocks all year. However, while shares in the electric automaker have nearly quadrupled this year, they're down 15% in the month of October. That's just the start of a bigger decline, according to Bollinger.

"Tesla's simply a stock that went too far, too fast," says Bollinger. "With Tesla, it's time for a pause to refresh."